Xtbe mniversttp ot Cbicaao 

FOUNDED BY JOHN D ROCKEFELLER 



THE ECONOMICS OF HENRY 

GEORGE'S "PROGRESS 

AND POVERTY" 



A DISSERTATION 

SUBMITTED TO THE FACULTY OF THE GRADUATE SCHOOL OF ARTS 

AND LITERATURE IN CANDIDACY FOR THE DEGREE 

OF DOCTOR OF PHILOSOPHY 

(department of POLITICAL ECONOMY) 



BY 

EDGAR H. JOHNSON 



Reprinted from The Journal of Political Economy, Vol. XVIII, No. g 
Chicago, 19 lo 



LIBRARY OF CONGRESS 





013 476 908 7 ^ 



HB 171 
.G3 J6 

^°py ^ Ube mnipcrsiti? ot Cbtcaoo 



rOUNDCD BY JOHN O. NOCKCPCLLrR 



THE ECONOMICS OF HENRY 

GEORGE'S "PROGRESS 

AND POVERTY" 



A DISSERTATION 

SUBMITTED TO THE FACULTY OF THE GRADUATE SCHOOL OF ARTS 

AND LITERATURE IN CANDIDACY FOR THE DEGREE 

OF DOCTOR OF PHILOSOPHY 

(department of POLITICAL ECONOMY) 



BY 



EDGAR H. JOHNSON 



Reprinted from The Journal of Political Economy, Vol. XVIII, No. 9 
Chicago, 1910 






THE ECONOMICS OF HENRY GEORGE'S "PROGRESS 
AND POVERTY" 

t Among the notable fiscal and social movements of recent 

years has been the tendency to lay increasing burdens of taxa- 
tion on land. The hotly contested campaign resulting in the 
passage of the Lloyd-George budget attracted world-wide inter- 
est. Under this law 20 per cent, of the increment in the value 
of land will be payable as^ a tax at each transfer of title. The 
increment tax is making considerable headway among the mu- 
nicipalities of Germany. Of the forty-one German cities with 
a population of more than 100,000, fifteen had such a tax in 
July, 1909.^ Some 'counties (Kreise) have also introduced the 
tax. The chief motive for the new taxes in the old counties 
seems to have been the necessity for additional revenue. 

In the newer countries of Australia and Canada laws have 
been passed which show a still more radical tendency to increase 
land taxes. Under some of these laws taxes are assessed on 
the basis of value of the land irrespective of the improve- 
ments thereon, while under others a higher rate of taxes is laid 
on unimproved than on improved real estate. The forces lead- 
ing to this legislation have been a desire to attract the invest- 
ment of capital by the promise of light taxation on this form of 
wealth and probably also a wider acceptance in the new coun- 
/ tries of the Single-Tax doctrine.^ 

*A. N. Holcombe, Quarterly Journal of Economics, XXIV, 194. 

^ In South Australia and New Zealand the state land tax is assessed on 
the basis of unimproved value. In both these states and also in New South 
Wales municipal rates may also be levied on the basis of the unimproved value 
of land if a local referendum so decides. •; In 1906, 43 of the 113 boroughs of 
New Zealand assessed rates on this hasi'S \(Papers Relating to the Working of 
Taxation of Unimproved Value of LdnU in New Zealand, New South Wales, 
and South Australia, -November, 1906 [Cd. 3191], pp. 24, 25, 45 ; and Papers 
Relative to the Working of Taxation of the Unimproved Value of Land in Nezv 
South Wales [Cd. 3761], September, 1907, p. 5). In British Columbia there is a 
provincial tax of three-fifths of i per cent, on improved property and of 4 per 
cent, on unimproved property. Of real estate within the bounds of municipali- 
ties there is a separate valuation iof lands and improvements. Improvements are 

714 






ECONOMICS OF "PROGRESS AND POVERTY" 715 

These developments in the field of actual legislation natu- 
rally reawaken interest in the Single Tax and in the now classic 
book which contains the explanation and defense of that theory. 
Progress and Poverty, however, is more than a discussion of the 
Single Tax. George carries the reader through more than three 
hundred pages before he even makes a statement of the policy of 
taxation which he proposes. The exposition of the general prin- 
ciples of political economy here found is still loyally accepted 
by many Single Taxers. 

The chief quality of the system of political economy found \ 
in Progress and Poverty is that it is built up to support and har- 
monize with George's leading thought, that the main source of 
our economic ills is the private appropriation of rent, and that 
the consequent remedy is the Single Tax on land. An exami- 
nation of this system will show that Single Tax is its terminus a 
quo as well as its terminus ad quem. How from this standpoint i 
George treats the subject of Malthusianism and the law of 
diminishing returns, the relation of capital to wages, the law of 
wage and of interest, and the theory of crises will be briefly 
discussed. 

I 

George opposes the Malthusian doctrine because it "parries 
the demand for reform and shelters selfishness from question and 
from conscience by the interposition of an inevitable necessity. 
It furnishes a philosophy by which Dives as he feasts can shut 
out the image of Lazarus who faints with hunger at his door."^ 
The real cause of want in Ireland and India and China, he says, 
has been "the rapacity of man, not the niggardliness of nature." 
"It is not dense population, but the causes which prevent social 

assessed at most at only 50 per cent, of their value and at the discretion of 
the council this percentage may be less. 0£ thirty-three municipalities which 
are reported in 1907 eleven laid no tax on improvements. Since then the city 
of Vancouver has removed all taxes on improvements, which it formerly assessed 
at 25 per cent, of their value. The principle of taxation on the basis of unim- 
proved land value is also applied in some of the villages of Alberta {Papers 
Relative to the Working of Taxation of Unimproved Value of Land in Canada, 
September, 1907 tCd. 3740], pp. 7, 12, 15). 
* Henry George, Progress and Poverty, 99. 



7l6 JOURNAL OF POLITICAL ECONOMY 

organization from taking natural development and labor from 
securing its full returns that keeps millions on the verge of 
starvation and every now and then forces millions beyond it."^ 

He denies that an increase of mankind leads to a pressure 
against the means of subsistence, but admits that this holds 
true of plants and animals.^ He then says : 

Does not the fact that all of the things which furnish means of subsist- 
ence have the power to multiply many fold, some of them many thousand 
fold, and some of them many million fold or even billion fold, while he is 
only doubling his numbers, show that, let human beings increase to the fail 
of their reproductive power, the increase of population can never exceed 
subsistence ?* 

The inconsistency of this reasoning is easily seen. It is 
indeed true that, favorable conditions being given, plants and 
animals which furnish food for man can be multiplied more 
rapidly than man himself. But is soon as the plants and ani- 
mals begin to press on their means of subsistence it is evident 
that a limit to population is set beyond which the same will be 
true of mankind. Let "human beings increase to the full of 
their reproductive power" for a few centuries, and they would 
become so numerous that not all the land in the world could 
furnish enough room for the growth of the plants and animals 
. necessary to the sustenance of this vast population. The diffi- 
culty thus lies in the very thing he admits — the pressure of 
plants and animals on their means of subsistence. 

Malthus thinks that an increase in general wealth will almost 
inevitably lead to an increase in population. George does not 
, accept this, and herein is the main difference between them. 
"Give more food, open fuller conditions of life, and the vege- 
table can but multiply; the man will develop.'"'' He holds that 
the tendency of population to "increase weakens" just as the 
high development of the individual becomes possible and the 
perpetuity of the race is assured.^ 

It is quite interesting to note George's treatment of the law 
of diminishing returns of land. So far as this law is useful in 
showing that an increase of rent results from an increase in 

* Ibid., 121. 

^Ibid., i2g. 'Ibid., 130. 'Ibid., 136. ''Ibid., 138. 



ECONOMICS OF "PROGRESS AND POVERTY" 717 

population, it suits his purpose and has his approval. He endeav- 
ors, however, to avoid its corollary — that an increase of popu- 
lation will cause a pressure on the means of subsistence. 

He represents the doctrine as though it ascribed the dimin- 
ishing productivity of the soil in response to additional appli- 
cations of labor and capital to the abstraction and removal from 
the soil of elements of fertility.^ He thinks that he has dis^^y 
proved the law as applied to the whole world by pointing out 
that according to the scientific laws of the indestructibility of 
matter and the conservation of energy the elements of fer- 
tility cannot be destroyed but are still somew-here in the earth. ^° 
So far as contributing to the production of subsistence is con- 
cerned, the carry ing-a way of soil and its products to the bottom 
of the sea amounts practically to their destruction. However, 
even if the soil could be preserved from the rain which washes, 
it and the wind which blows it away, even if the products of 
the soil were restored to it and there were no loss of fertility, 
the soil would still give diminishing returns, beyond a certain 
point of cultivation, to additional applications of labor and capi- 
tal. This manifest misrepresentation of the doctrine of dimin- 
ishing returns shows how distasteful to George was this eco- 
nomic law. 

George quotes from John Stuart Mill : "A greater number 
of people cannot, in any given state of civilization, be collect- 
ively so well provided for as a smaller. The niggardliness of 
nature, not the injustice of society, is the cause of the penalty 

attached to overpopulation "^^ With reference to this he 

says: 

All this I deny. I assert that the very reverse of these propositions is 
true. I assert that in any given state of civilization a greater number of 

"Ibid., 133. 

^" According to the doctrine of the conservation of forces it is the sum- 
total of forces in the universe that remains unchanged — not the sum of the 
forces which operate in and on the earth. Hence it may ultimately be true that 
at some remote period in the future little or no life can be maintained on this 
globe. It is interesting moreover to note that the scientists no longer agree in 
teaching that there is a conservation of energy. See Henry Adams, A Letter 
to American Teachers of History, i ff. 

"John Stuart Mill, Principles of Political Economy, Book I, chap, xiii, § 2. 



7l8 JOURNAL OF POLITICAL ECONOMY 

people can collectively be better provided for than a smaller. I assert that 
the injustice of society, not the niggardliness of nature, is the cause of 
the want and misery virhich the current theory attributes to overpopulation. 
I assert that the new mouths which an increasing population calls into exist- 
ence, require no more food than the old ones, while the hands they bring 
with them can in the natural order of things produce more. I assert that, 
other things being equal, the greater the population, the greater the comfort 
which an equitable distribution of wealth would give to each individual. I 
assert that in a state of equality the natural increase of population would 
constantly tend to make every individual richer instead of poorer." 

In support of this he appeals to the examples furnished by 
England and 'the United States. But this does not prove what 
he assumes it to do. "I assert," he says, "that in any given 
state of civilization a greater number of people can collectively 
be better provided for than a smaller." The state of civili- 
zation in the United States and England has been far from 
remaining the same. No previous century witnessed so many 
improvements in the arts of producing wealth as the first in the 
history of the United States. {Progress and Poverty was written 
only three years after our Centennial celebration.) Yet George 
takes no account of this, and ascribes the increased per-capita 
production to an increase in population. An increase in per- 
capita production has indeed gone along with an increase in 
population, but post hoc h not propter hoc. Rather it is the 
increase in the per-capita production which has made possible 
the increase in population without lowering the standard of life. 

To support his proposition George appeals also to a com- 
parison at the present time of the wealth of densely and of 
sparsely populated communities. 

Where will you find wealth devoted with most lavishness to non- 
productive use — costly buildings, fine furniture, luxurious equipages, statues, 
pictures, pleasure gardens, and yachts? Is it not where population is 
densest rather than where it is sparsest? .... These things conclusively 
show that wealth is greatest where population is densest ; that the production 
of wealth to a given amount of labor increases as population increases.*^ 

^. To this argument the same objection as before may be 
given. Because great wealth is found where there is a dense 

" Henry George, Progress and Poverty, 142. 
^^ Ibid., 143, 144. 



ECONOMICS OF "PROGRESS AND POVERTY" 719 

population, it does not follow that mere increase in numbers 
will by itself cause a large per-capita production. For reasons 
easy to explain, the most capable workers resort to the city. 
The less capable workers remain in the country to do the 
simpler and ruder work which is there required. Again, men 
of great wealth, whether landlords or capitalists, are naturally 
to be found in the city, on account of its superior social and 
commercial advantages. These simple considerations show how 
unreasonable it is to ascribe the greater per-capita wealth and 
income of the cities to mere density of population. 

Note, however, that even if George be correct in claiming 
that the increase in the per-capita production to be found in 
the cities is due to a mere increase in numbers, this will not jus- 
tify him in saying that an increase in population should make 
its support more easy. By so doing he confuses subsistence 
with wealth. "For the power of producing wealth in any form^'_j 
he says, "is the power of producing subsistence — and the con- 
sumption of wealth in any form, or of wealth-producing power, 
is equivalent to the consumption of subsistence,"^'* The question 
of subsistence for any individual or community which ex- 
changes with the rest of the world may indeed be a question 
of producing wealth. This is not true, however, of the world 
as a whole. Suppose, for the sake of simplicity, a self-suffi- 
cing country living apart from the rest of the world. The 
population increases until the soil yields but little larger crops 
to the increased exertion of labor. Suppose now a change to 
take place in the ability and tastes of these people. They take > 
the same wool and cotton, and out of them weave more elegant 
fabrics ; they take the same wood, and from it make furniture 
and houses which are better designed and therefore more valu- 
able. While this takes place the methods of cultivating the soil 
will probably make but little improvement. The wealth of 
the country measured in money has perhaps increased threefold ; 
but it evidently does not follow that therefore the country could 
support three times or even double the population so well as 
before. ~~ 

"Ibid., 133. 



720 JOURNAL OF POLITICAL ECONOMY 

The question of subsistence is largely a question of agri- 
cultural produce. Certain economies in the use of food and 
materials are possible, but, generally speaking, to feed and clothe 
more people it is necessary that the land yield larger crops. Less 
improvements in methods of agriculture, however, have been 
made than in manufactures, and the most notable inventions in 
agricultural machinery have been such as save labor without 
increasing the yield per acre. 

It is plain that a manufacturing country with a wide com- 
merce may greatly increase its wealth and population without 
any lessening of the average comfort so long as it can draw on 
its neighbors for subsistence and raw material. In discussing 
the general question of population the application of the law 
should evidently be to a complete industrial society. 

It is interesting to note that George has tried to deny the 
' law, or at least break its force, by making it apply to the whole 
earth. ^^ Now he endeavors to do the same -thing in another 
way, by confining attention to only a part of the industrial pro- 
cess — that which goes on at the center of population. 

After all, however, George does not, in a sense, deny the 

law of diminishing returns. He believes that with the increase 

in population will come such a division of labor and increase in 

labor-efficiency as will more than compensate for the diminish- 

L ing response on nature's part. He says : 

For even if the increase of population does reduce the power of the 
natural factor of wealth, by compelling a resort to poorer soils, etc., it yet so 
vastly increases the power of the human factor as more than to compensate. 
Twenty men working together will, where nature is niggardly, produce 
more than twenty times the wealth that one man can produce where nature 
is most bountiful. The denser the population, the more minute becomes 
the subdivision of labor, the greater the economies of production and dis- 
tribution, and, hence, the very reverse of the Malthusian doctrine is true; 
and, within the limits in which we have reason to suppose increase would 
still go on, in any -given state of civilization a greater number of people 
can produce a larger proportionate amount of wealth, and more fully supply 
their wants, than can a smaller number." 

' In other words the mere increase of population will brmg 

about a division of labor and cause it to be more productive. 

'' ^Ibid., 133- "/biU, 149-50 



ECONOMICS OF "PROGRESS AND POVERTY" 72 1 

It is true that in certain work, as in the moving of heavy 
objects, two men might accompHsh twice as much as one, but 
this kind of co-operation is relatively unimportant and its limits 
are soon reached. The proposition which George puts forth 
is clearly untenable. It is disproved not only by a priori reason- 
ing but by an appeal to the facts. China and India are densely^ 
populated and yet the average amount of wealth produced by 
the inhabitants of these lands is notoriously small. ~i 

If the principle as announced by George were correct, it 
would be in the interest of a greater production for the larger 
part of the United States to be given up and for the popula- 
tion to crowd in on a smaller area, so as to make "greater the 
economies of production and distribution." To claim that pro- 
duction can be increased by a restriction of area is thus really 
to deny the law of diminishing returns. Moreover, this prin- 
ciple is inconsistent with the claim that the withholding of land 
from use by speculators lessens the total product. 

Despite the curious and perverse treatment of diminishing 
returns which one finds in Progress and Poverty, it is interesting 
to note that in his Science of Political Economy George states a 
legitimate analogue or extension of this law. After observing 
that production takes place both in time and in space, he says : 

Now, from this necessary element or condition of all production, time, 
there result consequences similar to those which result from the necessary 
element or condition of all production, space. That is to say, there is a 
law governing and limiting the concentration of labor in time, as there is 
a law governing and limiting the concentration of labor in space. Thus 
there is in all forms of production a point at which the concentration of 
labor in time gives the largest proportionate result; after which the further 
concentration of labor in time tends to a diminution of proportionate result, 
and finally to prevent result." 

For example, if one is to build a warehouse of a given capacity 
there is a certain area on which this may be constructed with 
greatest advantage. If only half this area should be avail- 
able, a greater amount of labor and capital would have to be 
expended in order to get a warehouse as satisfactory as the 
first. This is in accordance with what is called the law of 

" Henry George, Science of Political Economy, 368-69. 



722 JOURNAL OF POLITICAL ECONOMY 

diminishing returns with respect to land. Now there is a 
certain time within which the warehouse can be constructed 
with most advantage. If it should be required to do this same 
work in half the time; this would require, as George points out, 
a greater expenditure of labor and capital. This may be called 
the law of diminishing returns with respect to time. 

II 

George makes a vigorous attack upon the wages- fund doc- 
trine, according to which the rate of wages is determined by 
the ratio of this fund to the number of laborers. He claims 
that the laborer is paid from the product of his labor and that 
what really keeps down this remuneration is the bad system 
of distribution. He likens the process of production to the 
pouring of water into a curved pipe already filled. "If a 
Cjuantity of water is poured in at one end a like quantity is 
released at the other. It is not identically the same water, but 
is its equivalent. And so they who do the work of produc- 
tion put in as they take out — they receive in subsistence and 
wages but the produce of their labor."^^ 

To John Stuart Mill a good part of capital consists of 
means of subsistence. Since real wages consist of commodities 
received by the laborer it is evident that with this use of terms 
wages are drawn from capital. George devotes a whole chapter 
to showing the incorrectness of this proposition, but to do so 
he really uses the terms in a different sense. To George "wages 
are that part of the produce of his labor obtained by the la- 
boref,"^^ and he gives such a definition of capital as to exclude 
means of subsistence already in the hands of the laborer. He 
defines capital as "wealth in course of exchange," but he would 
have exchange include "such transformations as occur when 
the reproductive or transforming forces of nature are utilized 
for the increase of wealth. "^^ When he defines capital as wealth 

"J. B. Clark uses practically the same simile to Illustrate the same idea. 
See Distribution of Wealth, 313. 

^* Henry George, Progress and Poverty, 80. 
==» Ibid., 46. 



ECONOMICS OF "PROGRESS AND POVERTY" 723 

in course of exchange the test is pecuniary; when he makes 
exchange include the transformations wrought by the forces 
of nature he introduces a technological test. A sewing-machine 
used by a woman for the making of her own clothes is 
not capital since it is not in course of exchange; however, it 
is a means whereby the transforming forces of nature are used 
in the increase of wealth. Although he says that such a machine 
is excluded from the categoiy of capital,^^ he includes the tree 
the fruit of which is enjoyed by the owner.-^ Here is an 
evident inconsistency. Had he made a slight change in his 
definition of capital so as to make it include wealth in the 
course of exchange (including in this consumption goods whose 
use brings in an income to the owner) and wealth used in the pro- 
duction of wealth which is to be exchanged, his conception of 
capital would have been that of the business man. 

in 

It is George's purpose in Progress and Poverty to show that 
there is an identity of interests between the laborer and the 
capitalist, but an opposition of interests between the laborer and 
the capitalist on the one hand and the landlord on the other. As 
tending to obscure these relations he criticizes the classical defi- 
nition of profits which includes under one term incomes of differ- 
ent nature 'and origin. He says: 

Of the three parts into which profits are divided by political economists 
— namely, compensation for risk, wages of superintendence, and return for 
the use of capital — the latter falls under the term interest, which includes 
all the returns for the use of capital, and excludes everything else; wages of 
superintendence falls under the term wages, which includes all returns for 
human exertion, and excludes everything else; and compensation for risk 
has no place whatever, as risk is eliminated when all the transactions of a 
community are taken together."^ 

No objection is'offered to the definition which makes wages 
include "all return to human exertion," but it should not be for- 
gotten that this would cause the organizers and captains of 
industry to be included among laborers. In speaking farther on 

^^Ibid., 45. ^Ibid., 188. 

"'Henry George, Progress and Poverty, 161. 



11 



724 JOURNAL OF POLITICAL ECONOMY 

of the poor condition of the laborer and of the tendency of 
wages to be forced to a minimum of subsistence he forgets his 
inclusive definition and has in mind the class of manual laborers. 
George also speaks as though labor were homogeneous, as if there 
were a general market rate of wages, so that a rise in this rate 
would benefit all laborers just as a rise in the price of wheat bene- 
fits the wheat-growers. Now it is evident that there are many 
classes of laborers and that their interests are not identical. The 
manager of an industry is, by George's definition, a laborer, yet 
he sometimes finds the reward of his exertion in keeping down 
the wages of his employees. 

Moreover, the question of risk is not disposed of by simply 
saying it has no place "since it is eliminated when all the trans- 
actions of a community are taken together." Risk-taking is, 
in fact, a distinct element in business and has its reward. If 
George's position is correct there is no reason, from a financial 
point of view, why a man should not as readily take the risks of 
gambling as those of industry. An insurance company does 
not assume risks without a reasonable expectation of gain, and 
the same is true of the business man. There are more gains 
than losses and hence the inducement for honest and sagacious 
men to engage in business. 
p It is easy to see how this scheme of distribution according to 
which the income of society is divided into rent, interest, and 
wages suits George's purpose. By his peculiar theory of the 
relation of capital and labor he finds that wages and interest rise 
and fall together. This enables him to reach the conclusion for 
which he was preparing, that the opposition of interests is that 
of the landlord against all the other members of society. 

George's conception of capital and its relation to labor may 
be seen from the following passage : 

For labor and capital are but different forms of the same thing — human 

exertion. Capital is produced by labor; it is, in fact, but labor impressed 

upon matter — labor stored up in matter, to be released again as needed, as 

I the heat of the sun stored up in coal is released in the furnace. The use 

of capital in production is, therefore, but a mode of labor.^* 



"\Ibid., 198. 



ECONOMICS OF "PROGRESS AND POVERTY" 725 

Now if it be true that capital is nothing more than stored-up 
labor to be released as needed, there is no explanation or justifi- 
cation of interest possible. A cask of wine represents, let us say, 
a certain amount of stored-up labor. After it has lain in the 
cellar of the wine merchant for several years, it has a greater 
capital value, but it cannot be said that the difference is due to 
additional labor bestowed on it. The heat of the sun is in a 
sense stored up in coal, but its combustion today will produce no 
more heat than if it had been burned many years ago. If a 
hundred gallons of water be stored in a tank, no more than this 
amount can be withdrawn, whether you wait a day or a year. 
If capital were, as George says, only stored-up labor, it could be 
of use only by a lessening of this labor-fund. We know, how- 
ever, that it is the quality of capital to yield an income and at 
the same time to maintain unimpaired the original fund of 
wealth. Capital, in fact, represents not merely labor that has 
been embodied in material form, but also the costs due to waiting 
and abstinence and the advantage that comes from having present 
rather than future goods. The idea that capital is merely stored- 
up labor allows no explanation of the difference in value due to 
a difference in time. It arises from a confusion of the hire paid 
for the use of perishable capital goods with interest paid for the 
use of an unimpaired capital fund.^^ 

George says that the rate of interest must be such that "the 
reward of capital and the reward of labor will be equal — that 
is to say, will give an equally attractive result for the exertion or 
sacrifice involved."^*' As above quoted, he speaks of labor and 

^° Besides this view of interest which regards it as paid for the release and 
use of stored-up labor, George has another and more famous theory of interest 
according to which he attempts to explain this phenomenon by reference to the 
reproductive vital forces of nature. R. S. Moffat (Mr. Henry George the Ortho- 
dox, 152) speaks of this as "one of the purest and most original of the efforts 
of Mr. George's genius as an economical reasoner." This much is certainly to 
his credit, that he recognizes that there is an interest problem. "What is the 
reason and justification of interest? Why should the borrower pay back more 
to the lender than he received?" (Henry George, Progress and Poverty, 175). 
These questions some economists have hardly thought it necessary to ask. For 
criticism of this theory see Bohm-Bawerk, Capital and Interest, 413-20, and 
Fisher, The Rate of Interest, 22, 23. 

''"Henry George, Progress and Poverty, 198. 



726 JOURNAL OF POLITICAL ECONOMY 

capital as "but different forms of the same thing — human 
exertion." Now it is not true that wages and interest are paid 
for the same thing. From the laborer's point of view, wages are 
paid for human exertion. From the point of view of the capital- 
ist, interest is paid for the postponement of consumption, for 
waiting or abstinence. If the laborer in a wagon factory should 
receive a wagon for his month's labor, this would constitute his 
wages, the reward for his exertion.^''^ If in place of exchanging 
the wages for present consumption goods he should hire the 
wagon for ten dollars a year, this interest would be paid to him 
as a capitalist, and for waiting, or abstinence, and would not be 
paid to him as a laborer in compensation for his exertion. 

Speaking of this natural relation between interest and wages 
— this equilibrium at which both will represent equal returns to 
equal exertions — George says : 

And this relation fixed, it is evident that interest and wages must rise 
and fall together, and that interest cannot be increased without increasing 
wages; nor wages lowered without depressing interest. For if wages fall, 
interest must also fall in proportion, else it becomes more profitable to 
turn labor into capital than to apply it directly; while, if interest falls, wages 
must likewise proportionately fall, or else the increment of capital would 
be checked.^' 

It is easy to show that this reasoning is fallacious. Let us 
suppose that our laborer-capitalist receives one hundred dollars 
a month for his labor and that he may, if he pleases, exchange 
this amount of money for a perpetual annuity of six dollars. 
Assume further that this establishes what George calls the equi- 
librium between wages and interest — but what should be more 
truly called the equilibrium between present and future goods. 
If now wages should fall so that he receives only fifty dollars a 
month, George says that interest must also fall in proportion, 
else it becomes more profitable to turn labor into capital than to 
apply it directly. If by this he means that when wages fall to 
one-half their former amount a month's wages will exchange 
for a perpetual annuity of only three dollars, this may be granted. 

" It would not constitute, of course, his real wages, since these are the 
consumption goods that he ultimately receives for his exertion. 
^^ Ibid., 199. 



ECONOMICS OF "PROGRESS AND POVERTY" 727 

Certainly if the month's wages could be still exchanged for an 
annuity of six dollars, the laborer-capitalist would, 'under the 
hypothesis, accept his reward in this form rather than in con- 
sumption goods. If he has counted such an annuity equal to one 
hundred dollars in present goods, it is of course to be preferred 
to half this amount. 

George, however, really means that a fall in wages will cause 
a similar fall in interest, not as an absolute amount, but as a 
percentage. This may be clearly seen from the following quo- 
tation : 

Is it not true that wherever there has been a general rise or fall in 
wages there has been at the same time a similar rise or fall in interest? 
In California, for instance, when wages were higher than anywhere else in 
the world, so also was interest higher. Wages and interest have in Cali- 
fornia gone down together. When common wages were $5 a day, the ordi- 
nary bank rate of interest was 24 per cent, per annum. Now that common 
wages are $2.00 to $2.50 a day, the ordinary bank rate is from 10 to 12 
per cent.°* 

Let us apply then this principle of .George to the supposed 
condition in which the laborer-capitalist finds an equal reward 
in accepting for his wages one hundred dollars in present goods 
or an annuity of six dollars. If wages fall to fifty dollars, or 
one-half, George says the rate of interest will fall in the same 
ratio, i.e., from 6 to 3 per cent. Now 3 per cent, of fifty dollars 
is one dollar and a half. If the wages fall one-half, the annuity 
for which the wages can exchange will fall to one- fourth! The 
smaller the wages of our laborer-capitalist, the less the rate at 
which he will be willing and able to lend ! By the same principle, 
if wages should double, the annuity for which they woiild ex- 
change would quadruple. 

There are no reasons based on theory which would lead us to 
believe that there is any such connection between wages and 
interest, and an examination of statistics likewise fails to reveal 
it. A. L. Bowley estimates that the average real wages in 
England for the years 1850, i860, 1870, 1880, 1890 were in 
proportion to the numbers 50, 55, 60, 70, 84, where the bank 

^ Ibid., 19, 20; see also p. 199. 



728 JOURNAL OF POLITICAL ECONOMY 

rates for those years were £2 10s id, £4 3^ yd, £3 2s od, £2 15^ 
4d, £4 10^ 2)d per £100 respectively. ^° 

That wages and interest fall and rise together and in the same 
ratio is thus 'a proposition in support of which little can be said. 
George reaches the result by arbitrary and illogical methods. It 
finds a place in his system because it can be used to show an 
identity of interest between laborer and capitalist; and if their 
interests are one, it is the more easy to unite them against their 
common foe, the landlord. 

The law of wages at which George arrives is : 

Wages depend upon the margin of cultivation or upon the produce which 
labor can obtain at the highest point of natural productiveness open to it 
without the payment of rent.'^ 

By the highest point of natural productiveness open without the 
payment of rent he means the best quality of no-rent land. 

George's statement of the law of interest is similar to that of 
the law of wages : 

.... So may we put the law of interest in a form which directly con- 
nects it with the law of rent, by saying that the general rate of interest will 
be determined by the return to capital upon the poorest land to which 
capital is freely applied — that is to say, upon the best land open to it without 
the payment of rent.^ 

In another place he says : 

This natural relation between interest and wages— this equilibrium at 
which both will represent equal returns to equal exertions — may be stated 
in a form which suggests a relation of opposition ; but this opposition is 
only apparent. In a partnership between Dick and Harry, the statement 
that Dick receives a certain proportion of the profits impHes that the por- 
tion of Harry is less or greater as Dick's is greater or less; but where, as 
in this case, each gets only what he adds to the common fund, the increase 
of the portion of the one does not decrease what the other receives.^ 

George thus announces that wages are determined by the 
productivity of labor upon no-rent land; that the rate of interest 
is determined by the return to capital upon this same marginal 

^"A. L. Bowley, Statistical Studies Relating to National Progress in Wealth 
and Trade Since 1882, 33. 

^^ Henry George, Progress and Poverty, 213. 
^-Ibid., 201. "Ubid., 199. 



ECONOMICS OF "PROGRESS AND POVERTY" 729 

land; that capital and labor each gets what it adds to the total 
product of industry. This is very interesting, since it contains 
a suggestion of the theory of the specific productivity of the 
separate factors of production. 

It must be admitted, however, that George did not have a 
definite comprehension of the principle of the marginal pro- 
ductivity of the separate factors. His habit of conceiving of_ 
the product of industry as the product of labor would preclude 
such an understanding. Moreover, although we can find pas- 
sages, as above given, in which he states that capital and labor 
each gets what it produces, he does not show how the product 
of labor can be distinguished from the product of capital. It 
is evident that in normal modern industry every product is a 
joint product, and that there is no product of capital or of labor 
in and by itself. 

In a recent French work the authors say : 

M. Clark dans sa Distribution of Wealth declare avoir emprunte a 
George I'idee de la methode par laquelle il s'eflforce de determiner la pro- 
ductivite propre de chaque facteur de la production.^'' 

A casual reader of Clark is not likely to recognize any such 
admission. He refers to George's theory "with all its absurdity." 
He does write, however : 

The theory that makes them [the gains of the laborer cultivating no-rent 
land] set the standard of all wages has the great merit of pointing out a 
method by which the product of bare work may be disentangled from all 
other products, and made to stand by itself and to be separately measured.^' 

The failure of George to recognize any other marginal field 
for labor than no-rent land led him to erroneous conclusions. 
Thus he says : 

Where land is subject to ownership and rent arises, wages will be fixed 
by what labor could secure from the highest natural opportunities open to 
it without the payment of rent. 

Where natural opportunities are all monopolized, wages may be forced 
by the competition among laborers to the minimum at which laborers will 
consent to reproduce.'^ 

^* Gide et Rist's Histoire des doctrines economiques depuis les physiocrates 
jusqu'd nos jours (1909), 645-46. 

^* Clark, The Distribution of Wealth, 88. 
"Henry George, Progress and Poverty, 213. 



73° JOURNAL OF POLITICAL ECONOMY 

And later : 

One man will not work for another for less than his labor will really 
yield, when he can go upon the next quarter-section and take up a farm 
for himself. It is only as land becomes monopolized and these natural 
opportunities are shut ofif from labor, that laborers are obliged to compete 
with each other for employment, and it becomes possible for the farmer 
to hire hands to do his work while he maintains himself on the difference 
between what their labor produces and what he pays them for it." 

As a matter of fact, there is an intensive as well as an 
extensive margin of cultivation. This no-rent margin exists even 
though every acre in the country should be subject to private 
ownership and yield a handsome rent. If as is the case in most 
industries the addition of a laborer will result in an increase in 
the total product, there will be competition among the employers 
for his services. The tendency will be for his wages to equal the 
present worth of the increase in the product of industry which 
results from his addition to the number of laborers. This 
intensive margin of cultivation is as real as that of no-rent land. 
It is indeed possible that when all the land is privately owned 
an effective combination of landowners to force down wages 
might work as George says, but such combinations are almost, 
if not quite, impossible to create, and certainly do not exist. 

Moreover, the laborer will directly receive as much wages 
on this margin under the system of private ownership of land 
as he would under the Single-Tax system. If that system would 
help the laboring man, it would be by a change in the incidence 
of taxation rather than by a direct increase in wages. 

IV 

The full title of George's famous book, Progress and Poverty, 
an Inquiry into the Causes of Industrial Depression and of 
Increase of Want with Increase of Wealth, the Remedy, shows 
that he attached considerable importance to his explanation of 
crises. The discussion of industrial depressions is perhaps the 
weakest part of his book and it affords a warning example of 
the deductive method when it is not checked and tested by an 
appeal to plain facts. 

'"'Ibid., 214-15. 



ECONOMICS OF "PROGRESS AND POVERTY" 731 

His theory can be simply stated. Speculation in land increases 
rent and consequently forces down wages and interest. The 
laborers and capitalists naturally resist this movement, produc- 
tion is interfered with, people are not all able to buy the goods 
that are made, and hence industrial crises with the phenomena 
of apparent over-production and under-consumption.^^ This 
assumes that speculation in land causes it to have a higher 
value and that this leads to increased rent. Now it is rent that 
determines the value of land and not the value of land that 
determines the rent. Speculation is based on estimates of the 
future rentals of land. Rent charges in the present will be 
increased by speculation only so far as it withdraws land from . 
use or has an indirect and psychological efifect in stimulatingj 
demand. It is evidently the case that the owner of land will 
usually be desirous of renting the land even if he does not sell it. 
Herein is a difference between speculation in commodities and 
speculation in land. Grain, for example, can be used only once 
and those who have large quantities sometimes withhold it from 
the market to force up the price. Land can be used continuously. 
He who buys it hoping to reap a gain in an increased value in 
the future is usually glad to rent it in the meantime, since other- 
wise he w^ould lose so much income. 

By common consent, George further argues, the lack of 
adjustment between production and consumption is due to specu- 
lation. But speculation in what? Not in the products of labor, 
for, as is well known, such speculation tends to steady the rela- 
tion of production to consumption, to equalize supply or demand. 
Therefore the hurtful speculation must be in that which is not 
the product of labor and yet is necessary to production — that 
is land.^^ This sort of a priori reasoning is characteristic of 
George's treatment of crises. 

He further argues that "this check to production, which 
shows itself in decreased purchasing power we must ultimately 
find .... in some obstacle which checks labor in expending 
itself on land. And that obstacle, it is clear, is the speculative 
advance in rent, or the value of land, which produces the same 

^^Ibid., 262. ^Ibid., 265. 



732 JOURNAL OF POLITICAL ECONOMY 

effects as, as in fact it is, a lock-out of labor and capital by land- 
owners."^^ Expressing the same thought he says a little farther 

on: "The land is the source of all wealth And, hence, 

when labor cannot satisfy its wants, may we not with certainty 
infer that it can be from no other cause than that labor is denied 
access to land?"^^ 

Evidently the wish is father to the thought. George sees in 
private ownership of land a great economic evil and he wishes 
to trace to it as many of our ills as possible. It is conceivable 
that there may be in certain localities, as was perhaps true of 
San Francisco just before 1873, such a craze of speculation in 
land as to amount to a lock-out there of labor and capital, but 
such phenomena are quite local and capital can find employment 
elsewhere. One cannot find a satisfactory explanation of a 
general crisis in causes so limited in their operation. George 
ignores the fact that in time of industrial depression and pre- 
ceding it the landowners are as anxious as the capitalists to 
get income from their property. Indeed one hears more in 
time of depression of timid capitalists than of timid landowners. 
Would you therefore conclude that there is a lock-out of land 
and labor by capital? George offers no evidence of the exist- 
ence of a "lock-out of labor and capital by landowners" either 
during or preceding a panic. Indeed since the capitalists or 
entrepreneurs usually own as much land as they need for carry- 
ing on their business it is difficult to see how such a dock-out 
could occur. 

As a further example of George's reasoning take the fol- 
lowing : 

Yet that there is a connection between the rapid construction of railroads 
and industrial depression, anyone who understands what increased land- 
values mean, and who has noticed the effect which the construction of 
railroads has upon land-speculation can easily see. Wherever a railroad 
was built or projected, lands sprang up in value under the influence of 
speculation, and thousands of millions of dollars were added to the nomi- 
nal values which capital and labor were asked to pay outright, or to pay in 
instalments, as the price of being allowed to go to work and produce 
wealth. The inevitable result was to check production and this check to 

'" Ibid., 267-68. *" Ibid., 270. 



ECONOMICS OF "PROGRESS AND POVERTY" 733 

production propagated itself in a cessation of demand, which checked pro- 
duction to the farthest verge of the wide circle of exchanges, operating with 
accumulated force in the centers of the great industrial commonwealth into 
which commerce links the civilized world/" 

The railroads of which he writes passed for the most part 
through districts sparsely settled or not inhabited at all. Here 
land-values were increased. But how could production be 
checked when there 'was no production or almost none before 
the railroads came? Again, those who do not themselves culti- 
vate land and who do not care to sell it are in nearly all cases glad 
to rent it and on conditions which do not call for the payment 
of rent until a crop has been made. It is thus not correct to 
say that capital and labor are required to pay out vast sums 
"as the price of being allowed to go to work and produce wealth." 
Even if the man who uses the land buys the title by the pay- 
ment of capital this sale need occasion no loss to industry since 
in the hands of the new owner this wealth may be, and in most 
cases will be, put to new uses. Lastly, some of the capital 
spent in the construction of railroads was overflow and surplus 
capital, and its use in the West caused no lessening of produc- 
tion in the quarters from which it came. It is indeed maintained 
that vast expenditures of labor and capital sunk in railroads 
which run through new territory do often result in an immediate 
lessening of the income of the community, just as would be pro- 
duced by an undue amount of unproductive consumption. This, 
however, is not the argument of George. He would have it that 
there is a check to production where there is, and because of, the 
increase in land-values. 

V 

In previously quoted passages George states that low wages ^- 
are due to the monopolization of land. It is true that, if a com- 
modity is made of three materials A, B, and C, and if A is subject 
to monopoly control while B and C are freely producible under 
competitive conditions, the monopolist of A will be able to absorb 
all the gains due to an increase in the value of the commodity. 
George really applies this principle to commodities in general, 

'"Ibid., 272-73. 



734 JOURNAL OF POLITICAL ECONOMY 

the products of land, labor, and capital. Land is a "monopoly," 
capital and labor are not, and hence the landlord absorbs all the 
gains of progress. The fallacy consists in the use of the word 
monopoly in two senses. The material A is monopolized when 
its supply is subject to substantial unity of control. Land is 
called a monopoly because limited in amount, but there exists no 
unity in its control and the landlords have consequently no power 
to absorb all differential gains. '^^ 

'-^' Following the adage which recommends giving a dog a bad 
name in order that he may be killed George gives such a definition 
of wealth as to exclude land and makes an illogical defense of the 
proposed innovation which showed that he confused land with 
land-titles.^^ He puts forward the labor theory of property 
rights, since this does not justify the ownership of land.^^ This 
theory leads naturally to another erroneous doctrine, the labor 
theory of value.^® 

In treating of land his constant purpose is to minimize it as an 
agent in production and to magnify it as a factor in distribution. 
He says, 

It [rent or land-value] in no wise represents any help or advantage 
given to production, but simply the power of securing a part of the results 
of production.*' 

If rent represented no help or advantage in production the 
producer would do without the use of land. Rent "represents" 
help or advantage in production in the same way that wages do. 
The payment of wages is not in itself an advantage but it repre- 
sents that which is such — labor. 

On the whole George's system of economics is in many places 
so fallacious and his doctrines so untenable that Progress and 
Poverty will doubtless cease to be the Bible of the Single Taxers, 
if, indeed, this is not true already. Some of these economic 
errors, as, for example, the explanation of the nature of interest, 
have nothing to do with the land tax. Others, such as his theory 

*' For different definitions and uses of the word "monopoly" see Ely, Monopo- 
lies and Trusts, chap. i. 

"Henry George, Progress and Poverty, 38, 39. 

*Ubid., 332-35. ^Ubid., 40, 142. «7bid,, 166. 



ECONOMICS OF "PROGRESS AND POVERTY" 735 

of crises and his doctrine that rent absorbs all the gains of 
progress, spring from a desire to make the case against the 
present system as strong as possible. 

Whatever of truth there may be in the Single-Tax contentions^^ 
flows from the facts that land is the gift of nature rather than 
the product of human toil, that its value is due to the activities 
of the community rather than of the owner, and that a tax upon 
it is not, generally speaking, a burden on industry. 

At bottom the principle which underlies George's doctrine of 
taxation is that the government should be supported by the appro- 
priation of unearned income. Besides the rent of land there are 
three other conspicuous examples of such incomes — those due to 
special franchise, to the tariff, and to inheritance. Special fran^J 
chises, e.g., the permission to use the streets of the city by an 
electric railway company, usually depend on the use of land, and 
whatever remedies need to be eft"ected can be accomplished 
through the power to exact a rent charge. One who accepts 
George's doctrines believes that the just ownership of property 
carries with it a natural and perfect right to transmit it untaxed 
to another, but this doctrine now properly finds little acceptance. 

Radical reformers of the present day may for the most part 
be divided into two classes — those who believe that the state 
should undertake to carry on the production and distribution of 
wealth and those who by taxation and otherwise would destroy 
all kinds of special privilege,^^ leaving the production and distri- 
bution of wealth to be determined by the forces of competition 
and extending the functions of government by a larger service 
of the people through the provision of better educational facili- 
ties, parks, playgrounds, etc., and by such regulations as may be 
needed to secure fair and proper conditions of competition. The 
Socialists represent one of these groups and the Single Taxers 
the other. 

Edgar H. Johnson 

*^ The word privilege is one of which the recent Single Taxers make much 
use. Henry George, Jr., has written The Menace of Privilege, and the title ol 
a recent book by F. C. Howe is Privilege and Democracy in America. 



